India will never lose the charm of gold at any price. Whatever be the Gold rates, our tradition of gifting jewellery to our near and dear ones keep the gold demand on higher side especially during the marriage season. In our previous articles we compared physical gold with gold ETF and advantages of investing in Gold ETF through SIP. But you may not please your wife with Demat Gold ETF units. I have seen an old habit especially among the ladies to keep track or ask their husband about gold rates today. While most of people buy gold from jewellers in and around their localities, few still purchase from their fixed shop in some old city area. A certain class of people now prefer Large Brands over these small personal shops.
Normally when we visit jewellers, they have a board or electronic display for today’s gold rates. These rate differ in different locations but are normally same in a marketplace situated in a locality. The main reason for the same, as explained by them, is that all are buying gold from a common place or it is fixed by their association. But when I compare these prices with that of wholesale market prices displayed on commodity exchanges, I find them to be different.
Here we will see that how these prices are calculated and also if there is any scope of bargaining on gold rates.
How to see the International Market Prices
Normally International markets are the place where Gold is traded either in physical or in financial derivatives in large quantities. Two authentic places to see Gold prices are London Bullion market association and NYMEX (where Gold futures are traded). The table below displays the current Bullion prices as a link from the leading website.
[gold-price]
Conversion of International Prices into Indian Rupees
Though India is the leading importer of Gold but still it follows the International Markets to determine its gold prices. The International prices are quoted in USD per Troy Oz which are converted in Rs. per Gram. The value out of this calculation along with import duty and local tax gives the local whole sale rates.
Instead of calculating, another simpler way is to visit mcxindia.com or ncdex.com and view gold future rates. The near month rates and spot rates are quoted in Rs. per 10 gram.
Price Variation due to Purity
Purity of Gold determines the percentage of Gold in the given item. The Gold biscuits which are said to be of pure gold are actually 99.5% Gold and are said to be as 995 purity. The famous term of 22 Carat pure is also said to be as 916 which means 91.6% gold. The International or domestic wholesale prices of Gold are of 99.5% purity and most of the jewellery is made with 91.6% Gold. I have seen few people insisting on 23 Carat Gold which is 95.5% gold as proportion. The 91.6% gold mean that for every 100gms of jewellery only 91.6 gms will be of gold and rest will be other metals which are cheaper. You can get these purity tested from the authorized assayers which charges between Rs.250 to Rs.1000 per instance. Alternatively buying a hallmarked jewellery could be a good options. A hallmarked jewellery will be of 916 purity and stamped on the backside.
The above calculation of gold prices are for 995 purity or 99.5% purity gold. To convert the same into 916 purity or 22 carat price. divide the same by 0.995 and multiply it with 0.916. The difference between these rates and the one stated on the jewellers board is the margin for bargaining.
Making Charges
An important component of jewellery cost is making charges which normally ranges between 10% to 20% of cost. This is charged according to the uniqueness of the design, wastage in making that ornament and processes involved. Another big reason is brand (which is perceived to be more trust worthy due to advertisement and administration) that creates a premium on prices over local jewellers. These making charges are having a scope of bargaining and should be carefully considered while buying jewellery.
Investing in Gold
However, if you are planning to invest in Gold, so here we have evaluated various options of Investing in Gold
Jewellery/Ornaments
Ornament like necklace or bangles which are normally purchased as per the liking of the lady who is going to wear the same. These are bigger purchases mostly for own use and should be treated like consumables or household items instead of investment as there are very less chances when these are actually sold or utilized for loans or otherwise. However I have seen few people buying gold chains for their daughters or sons in their childhood, which they intend to use on the occasion of their marriage expected to be 1-2 decades away.
Coins or Bars
Coins are generally purest form of gold available i.e. 99.99% gold and Bars are of 99.5% purity as said above. Moreover they are sold from the most trustworthy resource i.e. banks. It is among the most popular form of investing money in gold but I do not understand, why? I have two reason against selling gold first being the premium in the cost charged. I have seen prices of various banks and institutions which are selling Gold mostly at a premium of 12% to 17% from the wholesale cost of gold. Also while liquidating, banks are not buying back and jewellers asks for 5%-10% deduction in value. So one can think of this only if you are expecting to keep invested for 3-4 decades…yes, decades.
Gold ETF
Gold ETF is a good form of investing gold especially when your investment horizons is few years. When you buy Gold ETF, the Mutual Fund AMC buys an equivalent quantity of Physical gold and charges 1% of NAV towards the administrative expense. So, the day when you buy a unit of gold ETF, an expense of {1%/365} starts getting deducted on daily basis. Therefore is your holding period is 10 years, a total of 10% will be deducted from your market return on gold in the given investment period. However, this 10% is still lesser then all other methods seen above.
My Choice of Buying Gold
Well, applying on myself, If I think of buying gold, I would first try to analyze my need, whether it is for jewellery/ornaments and to be purchased in next 3-6 months or sole purpose of investment (and if investment then for what horizon). For ornaments, I would look for a better priced jeweller and get a hallmarked jewellery. For investment, I would first buy 1-2 gold chains which may be utilized as per the future needs on as is basis and then go for investment in Gold ETF.
Similarly you may take your own decisions based upon your requirements.
